Page 6 - FSUOGM Week 34

FSUOGM COMMENTARY FSUOGM

TCP still faces "daunting" challenges

The Trans-Caspian pipeline project still faces significant political and commercial challenges

CASPIAN “DAUNTING” challenges lie in the way of those developing the gas high—given that Turkmen
minded to revive the Trans-Caspian Pipeline gas has a high sulfur content—but the entire
(TCP) project that would deliver Turkmen gas to delivery chain is also expensive. While Turk-
European Union states via Azerbaijan, Georgia menistan has constructed an East-West pipeline
and Turkey, according to a senior fellow in the connecting its large fields with the Caspian Sea,
Global Energy Center writing for The Atlantic it has not installed the compressors needed to
Council think tank. move 30 bcma of gas. Add to that the cost of TCP
Addressing the question as to whether the itself just to get the gas across the Caspian.
project is “still a pipe dream”, Daniel Stein noted To deliver the gas to Europe, the string of
the impending completion of the Southern Gas pipelines that constitute the SGC could be
Corridor (SGC)—designed to deliver Azerbai- expanded, but at most only by 15 bcma, which
jani gas as far as Italy—has led to renewed inter- would mean additional investment in brand new
est in TCP. infrastructure for the remainder.
Wrote Stein: “The SGC will soon be fully “A final economic challenge is the fact that
operational, delivering 10 billion cubic meters Turkmen gas is condensate light, unlike [Azer-
per annum (bcma) of natural gas from Azer- baijani] Shah Deniz gas-in essence, Shah Deniz
baijan’s Shah Deniz gas field to customers in condensate subsidizes its gas. A detailed evalu-
Southeast Europe. However, while the SGC will ation of the economics of Turkmen gas is con-
advance energy diversification, its impact will be tained in a 2018 report from the Oxford Institute
limited by the relatively small volume of gas it for Energy Studies. The basic conclusion, unsur-
will deliver—10 bcma into a European market prisingly, is that Turkmen gas would not be price
of 450-500 bcma. That is why the United States competitive in Europe.”
and the EU have long promoted the concept of Looking at how TCP measures up regard-
a 30 bcma TCP, which would provide access to ing political support, Stein concluded: “No
Turkmenistan’s prolific gas fields.” doubt TCP has political support—Azerbaijan
Stein observed that a Center for Strategic and and Turkmenistan, as well as both the United
International Studies (CSIS) article argues that States and the EU, have consistently voiced that
there are four critical ingredients for successful support. But as we have seen from experience,
transnational pipelines, namely a dedicated source political support is a necessary, but not sufficient
of oil or gas, a competent commercial champion, condition for success. It does not substitute for
favourable economics and political support. and cannot itself create the commercial and eco-
nomic preconditions for success.”
How does it stack up?
He continued: “How does TCP stack up against Flip side
these four critical elements? First of all, there is He added: “The flip side of political support is
no dedicated source of gas. Turkmenistan has political opposition. While Russia opposed the
huge gas reserves, but while production at its 10 bcma SGC, it ultimately decided to instead
newer gas fields has increased in recent years, compete with the project. In the case of TCP, the
the bulk of it is committed to China under threat of much larger volumes of Turkmen gas
long-term contracts. The production capacity entering Europe could motivate more serious
at older fields, which previously supplied Russia, Russian efforts to block the project.”
is unclear and it is safe to assume their capacity Stein advised: “TCP has great political appeal
has been reduced. Therefore, a new source of gas and is destined to remain alive for many years, if
would have to be developed to supply TCP. only on PowerPoint presentations. In the mean-
“Second, there is no one currently willing or time, it will provide fodder for politicians and
able to play the role of commercial champion for bureaucrats (ignorant of or not understanding
TCP. If an international oil company were given commercial realities) and be a continuing source
an upstream stake in Turkmenistan, it would of income for consultants and would-be project
be in a position to develop the resource base promoters.
needed to fill the pipeline and act as its commer- “Finally, there is a downside to policymak-
cial champion. However, the Turkmen govern- ers focusing attention and efforts on grandiose
ment continues to prohibit foreign investment projects like TCP that are unrealistic, or on
in onshore gas production." creating new, duplicative structures (the Three
Even if the requirements of an adequate resource Seas Initiative comes to mind), which are mostly
base and a competent commercial champion were just empty rhetoric. Such efforts risk diverting
met, it would be unlikely that Turkmen gas could be needed attention away from more realistic but
delivered to Europe profitably, said Stein. less sensational policies, such as market liberali-
He continued: “Not only is the cost of zation and integration.” ™

P6 www. NEWSBASE .com Week 34 26•August•2020